Banco Santander-Chile (NYSE:BSAC) Q4 2023 Earnings Conference Call February 2, 2024 8:30 AM ET Company Participants Emiliano Muratore - Chief Financial Officer Carmen Gloria Silva - Economist Cristian Vicuna - Chief-Strategic Planning & Investor Relations Conference Call Participants Tito Labarta - Goldman Sachs Ernesto Gabilondo - Bank of America Yuri Fernandes - JPMorgan Neha Agarwala - HSBC Ewald Bittencourt - BICE Inversiones Daniel Mora - Credicorp Capital Operator Ladies and gentlemen, thank you for s ...

SANTIAGO, Chile, Feb. 02, 2024 (GLOBE NEWSWIRE) -- Banco Santander Chile (NYSE:BSAC, SSE: Bsantander))) announced today its resultsi for the twelve-month period ended December 31, 2023, and fourth quarter 2023 (4Q23). ROAE of 16.6% in 4Q23 and 11.9% in 12M23, with a solid net contribution from business segments that increases 34.7%. As of December 31, 2023, net income attributable to shareholders reached Ch$496,404 million ($2.63 per share and US$ 01.20 per ADR), decreasing 38.6% compared to the same period ...

Investors interested in Banks - Foreign stocks are likely familiar with DNB Bank ASA (DNBBY) and Banco Santander-Chile (BSAC) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Score ...

Interim Consolidated Financial Statements [Interim Consolidated Statements of Financial Position](index=3&type=section&id=INTERIM%20CONSOLIDATED%20STATEMENTS%20OF%20FINANCIAL%20POSITION) The Bank's consolidated financial position as of September 30, 2023, shows increased total assets and liabilities, driven by growth in key financial categories Interim Consolidated Statements of Financial Position (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :--------------------- | :------------------ | :------------------ | | **Total Assets** | 72,490,748 | 68,164,604 | | Cash and deposits | 2,411,594 | 1,982,942 | | Financial assets held for trading | 12,247,681 | 11,827,006 | | Financial assets at amortised cost | 43,665,555 | 42,560,431 | | **Total Liabilities** | 68,173,251 | 63,926,232 | | Financial liabilities at amortised cost | 47,015,699 | 43,704,024 | | **Total Equity** | 4,317,497 | 4,238,372 | - Total Assets increased by **MCh$4,326,144** from December 31, 2022, to September 30, 2023, reflecting growth across various asset categories[231](index=231&type=chunk) - Total Liabilities increased by **MCh$4,247,019** over the same period, primarily driven by higher financial liabilities at amortised cost[235](index=235&type=chunk) [Interim Consolidated Statements of Income](index=5&type=section&id=INTERIM%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) Consolidated profit for the nine months ended September 30, 2023, significantly decreased due to lower net readjustment income and higher credit loss expenses Interim Consolidated Statements of Income (MCh$) | Metric (9 months ended Sep 30) | 2023 (MCh$) | 2022 (MCh$) | Change (MCh$) | Change (%) | | :----------------------------- | :---------- | :---------- | :------------ | :--------- | | Net interest income | 490,671 | 472,274 | 18,397 | 3.90% | | Net readjustment income | 251,482 | 849,133 | (597,651) | -70.38% | | Net commission income | 387,406 | 298,960 | 88,446 | 29.58% | | Net financial result | 243,544 | 160,731 | 82,813 | 51.52% | | Total Operating Income | 1,393,956 | 1,794,293 | (400,337) | -22.31% | | Total Operational Costs | (669,632) | (725,110) | 55,478 | -7.65% | | Credit loss expenses | (352,282) | (253,444) | (98,838) | 39.00% | | Consolidated profit for the period | 334,238 | 719,060 | (384,822) | -53.52% | | Basic earnings per share (Ch$) | 1.70 | 3.75 | (2.05) | -54.67% | - Consolidated profit for the period decreased by **53.52%** from **MCh$719,060** in 2022 to **MCh$334,238** in 2023 for the nine-month period[18](index=18&type=chunk)[237](index=237&type=chunk) - Net readjustment income saw a substantial decrease of **70.38%**, falling from **MCh$849,133** in 2022 to **MCh$251,482** in 2023[237](index=237&type=chunk) - Credit loss expenses increased by **39.00%**, from **MCh$253,444** in 2022 to **MCh$352,282** in 2023, contributing to the profit decline[247](index=247&type=chunk) [Interim Consolidated Statements of Other Comprehensive Income](index=7&type=section&id=INTERIM%20CONSOLIDATED%20STATEMENTS%20OF%20OTHER%20COMPREHENSIVE%20INCOME) Total other comprehensive income for the nine months ended September 30, 2023, improved significantly, driven by positive changes in reclassifiable items, especially cash flow hedge accounting Interim Consolidated Statements of Other Comprehensive Income (MCh$) | Metric (9 months ended Sep 30) | 2023 (MCh$) | 2022 (MCh$) | Change (MCh$) | | :----------------------------- | :---------- | :---------- | :------------ | | Consolidated profit for the period | 334,238 | 719,060 | (384,822) | | Total other comprehensive income for the period | 103,342 | (16,231) | 119,573 | | Consolidated comprehensive income for the period | 437,580 | 702,829 | (265,249) | | Items that may be reclassified to profit or loss (before taxes) | 141,449 | (20,385) | 161,834 | | Cash flow hedge accounting | 158,072 | 29,124 | 128,948 | - Total other comprehensive income for the period shifted from a loss of **MCh$16,231** in 2022 to a gain of **MCh$103,342** in 2023[20](index=20&type=chunk) - Cash flow hedge accounting contributed significantly to this positive change, showing a gain of **MCh$158,072** in 2023 compared to **MCh$29,124** in 2022[20](index=20&type=chunk) [Interim Consolidated Statements of Cash Flows](index=8&type=section&id=INTERIM%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Net cash flow from operating activities decreased significantly, while financing activities shifted to a net provision, and investment activities continued to use cash Interim Consolidated Statements of Cash Flows (MCh$) | Metric (9 months ended Sep 30) | 2023 (MCh$) | 2022 (MCh$) | Change (MCh$) | | :----------------------------- | :---------- | :---------- | :------------ | | Total cash flow provided by (used in) operating activities | 231,988 | 1,094,299 | (862,311) | | Total cash flow provided by (used in) investment activities | (61,246) | (7,357) | (53,889) | | Total cash flows used in financing activities | 306,900 | (460,493) | 767,393 | | Net increase (decrease) in cash and cash equivalents | 370,244 | 477,642 | (107,398) | | Final balance of cash and cash equivalents | 2,466,084 | 3,486,630 | (1,020,546) | - Net cash flow from operating activities decreased significantly by **MCh$862,311**, from **MCh$1,094,299** in 2022 to **MCh$231,988** in 2023[28](index=28&type=chunk) - Cash flows from financing activities shifted from a net use of **MCh$460,493** in 2022 to a net provision of **MCh$306,900** in 2023, largely due to bond placements[30](index=30&type=chunk)[34](index=34&type=chunk)[43](index=43&type=chunk) - Purchases of fixed assets increased from **MCh$686** in 2022 to **MCh$40,453** in 2023, and intangible asset purchases rose from **MCh$6,769** to **MCh$27,140**[42](index=42&type=chunk) [Interim Consolidated Statements of Changes in Equity](index=11&type=section&id=INTERIM%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20EQUITY) Total equity increased from December 31, 2022, to September 30, 2023, influenced by profit and other comprehensive income, partially offset by dividends Interim Consolidated Statements of Changes in Equity (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :--------------------- | :------------------ | :------------------ | | Total Equity | 4,317,497 | 4,238,372 | | Equity holders of the Bank | 4,192,618 | 4,128,808 | | Non-controlling interest | 124,879 | 109,564 | | Profit for the period | 319,486 | 808,651 | | Dividends paid | (485,191) | (464,977) | - Total Equity increased by **MCh$79,125** from December 31, 2022, to September 30, 2023[2](index=2&type=chunk)[51](index=51&type=chunk) - Profit for the period attributable to equity holders was **MCh$319,486** for the nine months ended September 30, 2023, compared to **MCh$808,651** for the full year 2022[51](index=51&type=chunk) - Dividends paid amounted to **MCh$485,191** in 2023, impacting retained earnings[51](index=51&type=chunk) Notes to the Interim Consolidated Financial Statements [NOTE 01 - Background of the Institution](index=12&type=section&id=NOTE%2001%20-%20BACKGROUND%20OF%20THE%20INSTITUTION) Banco Santander-Chile is a Chilean banking corporation supervised by the FMC, listed on the NYSE, and controlled by Banco Santander Spain - Banco Santander-Chile is a banking corporation organized under Chilean laws, supervised by the Financial Market Commission (FMC), and listed on the NYSE through an ADR program[53](index=53&type=chunk) - The Bank provides a wide range of general banking services, including consumer and commercial banking, factoring, leasing, securities and insurance brokerage, and investment fund management[54](index=54&type=chunk) - As of September 30, 2023, Banco Santander Spain directly or indirectly controls **67.18%** of the Bank's shares through its subsidiaries Teatinos Siglo XXI Inversiones SA and Santander Chile Holding SA[49](index=49&type=chunk) [NOTE 02 - Breakdown of Main Accounting Standards](index=12&type=section&id=NOTE%2002%20-%20BREAKDOWN%20OF%20MAIN%20ACCOUNTING%20STANDARDS) This note details the accounting policies and standards used, covering preparation basis, consolidation, financial instruments, fixed assets, leases, and impairment - Interim Consolidated Financial Statements are prepared following the Compendium of Accounting Standards for Banks (CASB) and FMC instructions, adhering to IASB standards where not in conflict[55](index=55&type=chunk) - Control over an investee is established when the Bank has power, exposure to variable returns, and the ability to use its power to influence returns, consistent with IFRS 10 'Consolidated Financial Statements'[58](index=58&type=chunk) - Financial assets are classified and measured at amortised cost, fair value through other comprehensive income, or fair value through profit or loss, based on the business model and contractual cash flow characteristics (SPPI test)[102](index=102&type=chunk)[103](index=103&type=chunk)[111](index=111&type=chunk) [a. Preparation Basis](index=12&type=section&id=a%2E%20Preparation%20Basis) Interim Consolidated Financial Statements are prepared following the Compendium of Accounting Standards for Banks (CASB) and FMC instructions - These Interim Consolidated Financial Statements are prepared following the Compendium of Accounting Standards for Banks (CASB) and instructions from the Financial Market Commission (FMC)[55](index=55&type=chunk) - Where not covered by FMC regulations and not in conflict, generally accepted accounting criteria coinciding with International Accounting Standards Board (IASB) technical standards are applied[55](index=55&type=chunk) [b. Preparation of the Interim Consolidated Financial Statements](index=12&type=section&id=b%2E%20Preparation%20of%20the%20Interim%20Consolidated%20Financial%20Statements) Consolidated financial statements incorporate individual interim financial statements of the Bank and its controlled affiliates, adhering to IFRS 10 - Consolidated financial statements incorporate individual interim financial statements of the Bank and its controlled affiliates, adhering to IFRS 10 'Consolidated Financial Statements'[58](index=58&type=chunk) - Control is achieved when the Bank has power over the investee, exposure or rights to variable returns, and the ability to use its power to influence returns[58](index=58&type=chunk) - Profit or loss and other comprehensive income components are attributed to the Bank's equity holders and non-controlling interests[62](index=62&type=chunk) [i. Entities controlled by the Bank through participation in equity](index=13&type=section&id=i%2E%20Entities%20controlled%20by%20the%20Bank%20through%20participation%20in%20equity) This section lists entities controlled by the Bank through equity participation, detailing their main activity, place of incorporation, and ownership percentage | Entity | Main Activity | Place of Incorporation | Sep 30, 2023 Total Ownership (%) | | :-------------------------------------- | :--------------------------------- | :--------------------- | :------------------------------- | | Santander Corredora de Seguros Limitada | Insurance brokerage | Santiago, Chile | 99.76 | | Santander Corredores de Bolsa Limitada | Brokerage of financial instruments | Santiago, Chile | 51.00 | | Santander Asesoria: Financieras Limitada| Securities brokerage | Santiago, Chile | 99.03 | | Santander SA Sociedad Securitizadors | Acquisition of loans | Santiago, Chile | 99.64 | | Klare Corredora de Seguros SA | Insurance brokerage | Santiago, Chile | 50.10 | | Santander Consumer Finance Limitada | Automotive financing | Santiago, Chile | 51.00 | | Santander Getnet Chile | Card Operator | Santiago, Chile | 100.00 | [ii. Entities controlled by the Bank through other considerations](index=14&type=section&id=ii%2E%20Entities%20controlled%20by%20the%20Bank%20through%20other%20considerations) The Bank consolidates entities where it determines relevant activities, exercising control despite not holding a majority equity stake - The Bank consolidates entities like Santander Gestión de Recaudación y Cobranza Limitada, Banca Santander SA, and Multiplica SpA because it determines their relevant activities, thus exercising control despite not necessarily having majority equity participation[68](index=68&type=chunk) [iii. Associated entities](index=14&type=section&id=iii%2E%20Associated%20entities) This section lists associated entities where the Bank exercises significant influence, accounted for using the equity method | Associate | Main Activity | Place of Operation | Sep 30, 2023 Ownership (%) | | :-------------------------------------- | :------------------------------------------------ | :----------------- | :----------------------- | | Redbanc SA | ATM service | Santiago, Chile | 33.43 | | Transbank SA | Debit and credit card service | Santiago, Chile | 25.00 | | Centro de Compensación Automatizado SA | Electronic funds transfer and compensation services | Santiago, Chile | 33.33 | | Sociedad Interbancaria de Depósito de Valores SA | Repository of publicly offered securities | Santiago, Chile | 29.29 | | Cámara Compensación de Alto Valor SA | Payment clearing | Santiago, Chile | 15.00 | | Administrador Financiero del Transantiago SA | Smart cards for public transportation | Santiago, Chile | 20.00 | | Servicios de Infraestructura de Mercado OTC SA | Financial market infrastructure for derivatives | Santiago, Chile | 12.48 | - Associated entities are those where the Bank exercises significant influence (typically **20%** or more voting rights) but not control, and are accounted for using the equity method (IAS 28)[69](index=69&type=chunk) [iv. Share or rights in other companies](index=14&type=section&id=iv%2E%20Share%20or%20rights%20in%20other%20companies) Entities without control or significant influence are measured at fair value through other comprehensive income, with dividends recognized in the Income Statement - Entities where the Bank has no control or significant influence are measured at fair value in compliance with IFRS 9 'Financial Instruments'[71](index=71&type=chunk) - Changes in fair value for these instruments are recognized in 'Accumulated other comprehensive income - Items that will not be reclassified to profit or loss', while dividends are recorded in the Income Statement[72](index=72&type=chunk) [c. Non-controlling interest](index=15&type=section&id=c%2E%20Non-controlling%20interest) Non-controlling interest represents the portion of net income and net assets not owned by the Bank, presented separately in financial statements - Non-controlling interest represents the portion of net income and net assets not owned by the Bank, presented separately in the Interim Consolidated Statements of Income and Financial Position[77](index=77&type=chunk) - For entities controlled through 'other considerations' (not equity participation), profit and equity are fully presented as non-controlling interest[78](index=78&type=chunk) [d. Reporting segments](index=15&type=section&id=d%2E%20Reporting%20segments) Operating segments are identified based on business activities, regularly reviewed by the CEO for resource allocation and performance assessment - Operating segments are identified as components engaging in business activities, whose results are regularly reviewed by the CEO for resource allocation and performance assessment, and for which discrete financial information is available[82](index=82&type=chunk)[83](index=83&type=chunk) - Segments are reported separately if their revenues, results, or assets exceed **10%** of the combined total across all operating segments[80](index=80&type=chunk) [e. Functional and presentation currency](index=16&type=section&id=e%2E%20Functional%20and%20presentation%20currency) The Chilean Peso is the Bank's functional and presentation currency, reflecting its primary economic environment - The Chilean Peso is defined as the Bank's functional and presentation currency, as it is the currency of the primary economic environment in which the Bank operates[85](index=85&type=chunk) [f. Transactions in foreign currency](index=16&type=section&id=f%2E%20Transactions%20in%20foreign%20currency) Foreign currency assets and liabilities are translated at month-end market exchange rates, with gains/losses recognized from exchange rate changes and transactions - Assets and liabilities denominated in foreign currencies, primarily US dollars, are translated into Chilean Pesos at the market exchange rate at the end of the reported month[86](index=86&type=chunk) - Net foreign exchange gain and loss includes effects of exchange rate changes on foreign currency-denominated assets and liabilities, and profit/loss on foreign exchange spot and forward transactions[87](index=87&type=chunk) [g. Cash and cash equivalents](index=16&type=section&id=g%2E%20Cash%20and%20cash%20equivalents) Cash flow statements use the indirect method, starting with pre-tax income and including deposits with the Central Bank and other banks - The indirect method is used for cash flow statements, starting with consolidated pre-tax income and incorporating non-cash transactions and cash flows from investing/financing activities[88](index=88&type=chunk) - Cash and cash equivalents include deposits with the Central Bank of Chile, domestic banks, and abroad[89](index=89&type=chunk) [h. Definitions, classification and measurement of financial assets/liabilities](index=16&type=section&id=h%2E%20Definitions%2C%20classification%20and%20measurement%20of%20financial%20assets%2Fliabilities) This section defines, classifies, and measures financial assets and liabilities based on business models, contractual cash flows, and IFRS 9 criteria - A financial instrument is any contract giving rise to a financial asset in one entity and a financial liability or equity instrument in another[91](index=91&type=chunk) - Financial assets are classified based on the entity's business models for managing them and the contractual cash flow characteristics (SPPI test)[102](index=102&type=chunk)[103](index=103&type=chunk) - Financial assets are subsequently measured at amortised cost, fair value through other comprehensive income, or fair value through profit or loss, while financial liabilities are generally measured at amortised cost, except for derivatives[111](index=111&type=chunk)[114](index=114&type=chunk) [i. Definitions](index=16&type=section&id=i%2E%20Definitions) This section provides core definitions for financial instruments, financial assets, and financial liabilities - Defines 'financial instrument' as a contract creating a financial asset and a financial liability or equity instrument in different entities[91](index=91&type=chunk) - Defines 'financial asset' as cash, an equity instrument of another entity, or a contractual right to receive/exchange financial assets under favorable conditions[92](index=92&type=chunk) - Defines 'financial liability' as a contractual obligation to deliver/exchange financial assets under potentially unfavorable conditions[93](index=93&type=chunk) [ii. Initial recognition](index=17&type=section&id=ii%2E%20Initial%20recognition) Financial assets or liabilities are recognized when the entity becomes a party to the contractual terms, with conventional purchases/sales recognized using trade or settlement date accounting - A financial asset or liability is recognized when the entity becomes part of the contractual terms of the instrument[101](index=101&type=chunk) - Conventional purchases or sales of financial assets are recognized using trade date or settlement date accounting[101](index=101&type=chunk) [iii. Classification of financial assets/liabilities](index=17&type=section&id=iii%2E%20Classification%20of%20financial%20assets%2Fliabilities) Financial assets are classified based on business model and contractual cash flow characteristics, while most financial liabilities are measured at amortised cost - Financial assets are classified based on the business model for managing them and the contractual cash flow characteristics (SPPI test)[102](index=102&type=chunk)[103](index=103&type=chunk) - Business models include 'hold to collect cash flows', 'maintain for collection and sale', and 'other models' (fair value through profit or loss)[105](index=105&type=chunk) - All financial liabilities are subsequently measured at amortised cost, except for derivative liabilities measured at fair value through profit or loss[109](index=109&type=chunk) [iv. Measurement of financial assets/liabilities](index=18&type=section&id=iv%2E%20Measurement%20of%20financial%20assets%2Fliabilities) Financial assets are measured at amortised cost, fair value through other comprehensive income, or fair value through profit or loss, based on specific criteria - Financial assets are measured at amortised cost if held to collect cash flows and contractual terms result in solely principal and interest payments[111](index=111&type=chunk) - Financial assets are measured at fair value through other comprehensive income if held for both collecting contractual cash flows and selling, and contractual terms result in solely principal and interest payments[111](index=111&type=chunk) - Financial assets not meeting amortised cost or FVOCI criteria are measured at fair value through profit or loss[112](index=112&type=chunk) [v. Derecognition of financial assets/liabilities](index=19&type=section&id=v%2E%20Derecognition%20of%20financial%20assets%2Fliabilities) Financial assets are derecognized when contractual rights expire or risks/rewards are transferred, while liabilities are derecognized when extinguished - Financial assets are derecognized when contractual rights to cash flows expire or are transferred, or when substantially all risks and rewards of ownership are transferred[115](index=115&type=chunk)[213](index=213&type=chunk) - Financial liabilities are derecognized only when extinguished (discharged, cancelled, or expired)[117](index=117&type=chunk) [vi. Offsetting a financial asset with a financial liability](index=19&type=section&id=vi%2E%20Offsetting%20a%20financial%20asset%20with%20a%20financial%20liability) Financial assets and liabilities are offset only when there is a legally enforceable right and an intention to settle net, with no offsets reported by the Bank - Financial assets and liabilities are offset and presented net only when there is a legally enforceable right to set off and an intention to settle net or realize/settle simultaneously[118](index=118&type=chunk) - As of September 30, 2023, and December 31, 2022, the Bank has no financial asset/liability offsets[118](index=118&type=chunk) [i. Financial derivatives and accounting hedges](index=19&type=section&id=i%2E%20Financial%20derivatives%20and%20accounting%20hedges) The Bank uses financial derivatives for risk management and trading, with specific criteria for hedge accounting and recognition of value changes - The Bank uses financial derivatives for customer risk management, proprietary position risk management (hedging), and to benefit from value changes (trading)[119](index=119&type=chunk) - For a derivative to qualify as a hedging instrument, it must cover specific risks (fair value, cash flow, or net investment), be highly effective, and be adequately documented[122](index=122&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - Changes in value for fair value hedges are included in 'Net income (expense) from financial operations', while for cash flow hedges, the effective portion is recorded in 'Valuation accounts - cash flow hedges' within equity[126](index=126&type=chunk)[127](index=127&type=chunk) [j. Fair value of financial assets and liabilities](index=21&type=section&id=j%2E%20Fair%20value%20of%20financial%20assets%20and%20liabilities) Fair value is defined as the exit price in an orderly transaction, estimated using market prices or validated models, and categorized by a three-level hierarchy - Fair value is defined as the price received to sell an asset or paid to transfer a liability in an orderly transaction in the principal market at the measurement date[131](index=131&type=chunk) - When no market price exists, fair value is estimated using prices from recent similar transactions or validated valuation models, maximizing observable input data[137](index=137&type=chunk)[138](index=138&type=chunk) - A fair value hierarchy (Level 1, 2, 3) is established, prioritizing quoted prices in active markets (Level 1) and giving lowest priority to unobservable inputs (Level 3)[149](index=149&type=chunk) [k. Fixed assets](index=23&type=section&id=k%2E%20Fixed%20assets) Fixed assets are presented at acquisition cost minus depreciation and impairment, with depreciation calculated using the straight-line method over estimated useful lives - Fixed assets for own use are presented at acquisition cost minus accumulated depreciation and impairment loss[161](index=161&type=chunk) - Depreciation is calculated using the straight-line method over the estimated useful life, with land having an indefinite life[162](index=162&type=chunk) Useful Life of Fixed Assets (Months) | ITEM | Useful Life (Months) | | :---------------------------------- | :------------------- | | Carpets and curtains | 36 | | Computers and Hardware | 36 | | Vehicles | 36 | | ATMs and teleconsultations | 60 | | Machines and general equipment | 60 | | Office furniture | 60 | | Telephone and communication systems | 60 | | Security systems | 60 | | Rights over telephone lines | 60 | | Air conditioning systems | 84 | | Other installations | 120 | | Buildings | 1,200 | [l. Leases](index=24&type=section&id=l%2E%20Leases) As a lessee, the Bank recognizes right-of-use assets and lease liabilities, while as a lessor, leases are classified as financial or operating - As a lessee, the Bank recognizes a right-of-use asset and a lease liability at the lease start date, calculated as the present value of lease payments discounted at the incremental interest rate[171](index=171&type=chunk) - As a lessor, the Bank classifies leases as financial or operating based on whether substantially all risks and benefits of the asset are transferred, recognizing lease rentals on a straight-line income basis for operating leases[174](index=174&type=chunk)[175](index=175&type=chunk) - For third-party financing, the present value of lease payments receivable is recognized as loans under 'Loans and receivables from customers', with financial income/expense recorded to achieve a constant return rate[177](index=177&type=chunk) [m. Factoring transactions](index=25&type=section&id=m%2E%20Factoring%20transactions) Factored receivables are valued at the disbursed amount, with the price difference recognized as interest income, and the Bank assumes insolvency risks - Factored receivables are valued at the amount disbursed by the Bank, with the price difference recorded as interest income using the effective interest method over the financing period[178](index=178&type=chunk) - The Bank assumes insolvency risks when the assignment of instruments involves no liability on the part of the assignee[178](index=178&type=chunk) [n. Intangible assets](index=25&type=section&id=n%2E%20Intangible%20assets) Intangible assets are non-monetary assets without physical substance, recognized at cost, and amortised linearly over their estimated useful life - Intangible assets are non-monetary assets without physical substance, recognized at acquisition or production cost when reliably measurable and expected to generate future economic benefits[179](index=179&type=chunk) - Internally developed computer software is recorded as an intangible asset if identifiable and capable of generating future economic benefits[180](index=180&type=chunk) - Intangible assets are amortised linearly over their estimated useful life, typically **36 months**, unless a different period of benefit is demonstrated[180](index=180&type=chunk) [o. Non-current assets held for sale](index=25&type=section&id=o%2E%20Non-current%20assets%20held%20for%20sale) Non-current assets are classified as held for sale if their carrying amount will be recovered primarily through a sale transaction within one year - Non-current assets are classified as held for sale if their carrying amount will be recovered primarily through a sale transaction rather than continued use, requiring immediate availability and high sale probability within one year[182](index=182&type=chunk) - Assets classified as held for sale are measured at the lower of their carrying amount or fair value less selling costs[183](index=183&type=chunk) - Assets received or awarded in lieu of payment are recorded at an agreed price or judicial auction amount, and subsequently valued at the lower of the initially recorded figure and net realisable value[185](index=185&type=chunk)[187](index=187&type=chunk) [p. Income and expense recognition](index=26&type=section&id=p%2E%20Income%20and%20expense%20recognition) Interest income and expense are recognized on an accrual basis using the effective interest rate method, while commission income follows IFRS 15 - Interest income and expense are recognized on an accrual basis using the effective interest rate method, ceasing accrual when a loan is **90 days** overdue[190](index=190&type=chunk) - Commission income and expenses are recognized under IFRS 15 'Revenue from contracts with customers' when performance obligations are satisfied by transferring the service to the customer[194](index=194&type=chunk)[198](index=198&type=chunk) - Financial fees and commissions arising on loan origination are accrued and recognized over the life of the loan[206](index=206&type=chunk) [q. Provisions for credit risk on loans and receivables and contingent liabilities](index=28&type=section&id=q%2E%20Provisions%20for%20credit%20risk%20on%20loans%20and%20receivables%20and%20contingent%20liabilities) The Bank establishes provisions for expected credit losses on loans and contingent liabilities, classifying debtors and applying standard or internal provisioning models - The Bank evaluates its loan and contingent loan portfolio to create sufficient provisions for expected losses, using individual and group assessment models established by the FMC[725](index=725&type=chunk) - Debtors are classified into Normal, Substandard, and Impaired portfolios based on credit quality, payment ability, and delinquency, with specific probability of non-performance and severity rates[29](index=29&type=chunk)[272](index=272&type=chunk)[294](index=294&type=chunk)[728](index=728&type=chunk) - For mortgage and commercial loans, the Bank applies standard provisioning methods from the CASB, while for consumer loans, it uses internal models, always recognizing the higher value between standard and internal methods[284](index=284&type=chunk)[304](index=304&type=chunk)[308](index=308&type=chunk) [r. Impairment of financial assets other than loans and receivables and contingent liabilities](index=37&type=section&id=r%2E%20Impairment%20of%20financial%20assets%20other%20than%20loans%20and%20receivables%20and%20contingent%20liabilities) The Bank applies IFRS 9's three-step impairment model, using 12-month or lifetime expected credit loss based on credit risk changes and forward-looking information - The Bank applies IFRS 9 'Financial Instruments' to determine impairment, using a dual measurement approach: **12-month** expected credit loss or lifetime expected credit loss[348](index=348&type=chunk)[349](index=349&type=chunk)[369](index=369&type=chunk)[370](index=370&type=chunk) - The 'three-step' impairment model classifies financial instruments into Phase 1 (**12-month** ECL), Phase 2 (lifetime ECL due to significant credit risk increase), and Phase 3 (credit-impaired assets, lifetime ECL)[350](index=350&type=chunk)[373](index=373&type=chunk) - Expected credit loss (ECL) estimates are based on probability of default (PD), loss given default (LGD), and exposure at default (EAD), incorporating forward-looking information and multiple scenarios[374](index=374&type=chunk) [s. Impairment of non-financial assets](index=39&type=section&id=s%2E%20Impairment%20of%20non-financial%20assets) Non-financial assets are reviewed for impairment indicators, and if the carrying amount exceeds the recoverable amount, it is written down - Non-financial assets are reviewed at each reporting date for impairment indicators, and if the carrying amount exceeds the recoverable amount, it is written down[377](index=377&type=chunk) - The recoverable amount is the higher of fair value minus disposal costs and value in use, with impairment losses recognized immediately in profit or loss[360](index=360&type=chunk) [t. Provisions, contingent assets and liabilities](index=39&type=section&id=t%2E%20Provisions%2C%20contingent%20assets%20and%20liabilities) Provisions are recognized for present legal or constructive obligations with probable resource outflows, while contingent items are potential rights/obligations from past events - Provisions are recognized when there is a present legal or constructive obligation from past events, a probable outflow of resources to settle it, and the amount can be reliably measured[397](index=397&type=chunk) - Contingent assets/liabilities are potential rights/obligations arising from past events, confirmed only by uncertain future occurrences outside the Bank's control[382](index=382&type=chunk) [u. Income tax and deferred taxes](index=40&type=section&id=u%2E%20Income%20tax%20and%20deferred%20taxes) Deferred tax assets and liabilities are recognized for future tax effects of temporary differences, calculated using applicable tax rates and netted on a consolidated level - Deferred tax assets and liabilities are recognized for future tax effects of temporary differences between carrying amounts and tax bases, calculated using the tax rate applicable in the year of realization/settlement[383](index=383&type=chunk) - Tax items are cleared at the taxing entity's level and then netted on a consolidated level for presentation in the Interim Consolidated Statements of Financial Position[384](index=384&type=chunk) [v. Employee benefits](index=40&type=section&id=v%2E%20Employee%20benefits) The Bank offers a defined benefit pension plan for executives, calculated using the projected unit credit method, and measures cash-settled share-based payments at fair value - The Bank offers a defined benefit pension plan for main executives, with benefits accruing if they remain employed until age **60**[385](index=385&type=chunk)[403](index=403&type=chunk) - The projected unit credit method is used to calculate the present value of defined benefit obligations and current service costs[404](index=404&type=chunk) - Cash-settled share-based payments to executives are measured at fair value, with changes recognized in the income statement[407](index=407&type=chunk)[429](index=429&type=chunk) [w. Use of Estimates](index=41&type=section&id=w%2E%20Use%20of%20Estimates) Financial statement preparation requires management estimates and assumptions, with key areas including loan loss allowances, asset impairment, and fair value measurements - Preparation of financial statements requires management to make estimates and assumptions affecting reported values of assets, liabilities, revenues, and expenses, with actual results potentially differing[408](index=408&type=chunk) - Key estimates include allowances for loan loss, impairment of assets, useful lives of tangible/intangible assets, fair value of financial instruments, and current/deferred taxes[412](index=412&type=chunk)[433](index=433&type=chunk) [x. Temporary acquisition (assignment) of assets](index=42&type=section&id=x%2E%20Temporary%20acquisition%20%28assignment%29%20of%20assets) Purchases or sales of financial assets under non-optional repurchase agreements are recorded as financial assignments/receipts, with price differences recognized as financial interest - Purchases or sales of financial assets under non-optional repurchase agreements (repos) are recorded as financial assignments/receipts based on the nature of the debtor/creditor[412](index=412&type=chunk) - The price difference between purchase and sale is recorded as financial interest over the contract's life[434](index=434&type=chunk) [y. Earnings per share](index=42&type=section&id=y%2E%20Earnings%20per%20share) Basic earnings per share are calculated by dividing net income by weighted average shares, with no dilutive instruments affecting diluted EPS - Basic earnings per share are calculated by dividing net income attributable to equity holders by the weighted average number of outstanding shares[433](index=433&type=chunk) - Diluted earnings per share adjust for potential dilutive effects of stock options, warrants, and convertible debt; however, the Bank held no such instruments as of September 30, 2023, and December 31, 2022[433](index=433&type=chunk) [z. Assets and investment funds managed by the Bank](index=42&type=section&id=z%2E%20Assets%20and%20investment%20funds%20managed%20by%20the%20Bank) Assets managed by the Bank's consolidated entities but owned by third parties are not included in the financial statements, with commissions recognized as income - Assets managed by the Bank's consolidated entities but owned by third parties are not included in the Interim Consolidated Statements of Financial Position[413](index=413&type=chunk) - Commissions generated from this activity are included in 'Fee and commission income' in the Interim Consolidated Statement of Income[413](index=413&type=chunk) [aa. Provision for mandatory dividends](index=42&type=section&id=aa%2E%20Provision%20for%20mandatory%20dividends) The Bank recognizes a liability for mandatory dividends, requiring at least 30% of net income distribution, recorded as a deduction from retained earnings - The Bank recognized a liability (provision) for minimum or mandatory dividends, requiring at least **30%** of net income to be distributed, unless otherwise resolved by shareholders[414](index=414&type=chunk) - This provision is recorded as a deduction from 'Retained earnings' under 'Provision for dividends, interest payments and repricing of equity financial instruments' in the Interim Consolidated Statements of Changes in Equity[414](index=414&type=chunk) [NOTE 03 - New Accounting Pronouncements Issued and Adopted or Issued and Not Yet Adopted](index=43&type=section&id=NOTE%2003%20-%20NEW%20ACCOUNTING%20PRONOUNCEMENTS%20ISSUED%20AND%20ADOPTED%20OR%20ISSUED%20AND%20NOT%20YET%20ADOPTED) This note outlines new accounting pronouncements from FMC and IASB, detailing those adopted without material impact and those issued but not yet adopted - General Standard No **484** (FMC) establishes requirements for fees charged on money lending transactions, effective August 1, 2023, with no material impact on the Bank's financial statements[417](index=417&type=chunk)[419](index=419&type=chunk) - Amendments to IAS 1 (liability classification), IAS 8 (accounting estimates), IAS 1 and IFRS 2 (accounting policy disclosures), and IAS 12 (deferred taxation) have been adopted, with no material impact on the Bank's financial statements[420](index=420&type=chunk)[421](index=421&type=chunk)[439](index=439&type=chunk)[441](index=441&type=chunk) - New pronouncements, including IFRS S1 (sustainability-related financial disclosures) and IFRS S2 (climate-related disclosures), are issued but not yet mandatory, with the Administration assessing their potential effects for effective dates starting January 1, 2024[445](index=445&type=chunk)[465](index=465&type=chunk) [1. Pronouncements issued and adopted](index=43&type=section&id=1%2E%20Pronouncements%20issued%20and%20adopted) This section details new accounting pronouncements issued by the FMC and IASB that have been adopted, with no material impact on the Bank's financial statements - General Standard No **484** from the FMC, effective August 1, 2023, sets rules for commissions on credit operations, defining inherent services and requiring clear debtor information[417](index=417&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk) - IASB amendments adopted include IAS 1 (liability classification), IAS 8 (definition of accounting estimates), IAS 1 and IFRS 2 (disclosures of accounting standards), and IAS 12 (deferred taxation from single transactions), all with no material impact on the Bank's financial statements[420](index=420&type=chunk)[421](index=421&type=chunk)[439](index=439&type=chunk)[441](index=441&type=chunk) [2. Issued pronouncements which have not yet been adopted](index=44&type=section&id=2%2E%20Issued%20pronouncements%20which%20have%20not%20yet%20been%20adopted) This section outlines new accounting pronouncements issued but not yet adopted, including FMC's new provisioning methodology and IASB's sustainability disclosures - The FMC is consulting on a new standardized methodology for calculating provisions for consumer and contingent loans, expected to be effective by January 2025[442](index=442&type=chunk) - IASB amendments not yet adopted include IAS 7 and IFRS 7 (supplier finance arrangements), IFRS S1 (general sustainability-related financial disclosures), and IFRS S2 (climate-related disclosures), all with effective dates starting January 1, 2024, and currently under assessment by management[444](index=444&type=chunk)[445](index=445&type=chunk)[465](index=465&type=chunk) [NOTE 04 - Accounting Changes](index=46&type=section&id=NOTE%2004%20-%20ACCOUNTING%20CHANGES) As of the issuance date of these Interim Consolidated Financial Statements, there were no accounting changes to disclose - As of the date these Interim Consolidated Financial Statements were issued, there were no accounting changes to disclose[467](index=467&type=chunk) [NOTE 05 - Significant Events](index=47&type=section&id=NOTE%2005%20-%20SIGNIFICANT%20EVENTS) Significant events include dividend distribution, Board changes, bond issuances, Transbank stock sale process, and a new Central Bank liquidity program - At the April 19, 2023, Shareholders' Meeting, **60%** of 2022 net profit (**MCh$485,191**) was approved for dividend distribution (**Ch$2.57469221** per share), with the remaining **40%** allocated to increase reserves and retained earnings[452](index=452&type=chunk) - In 2023, the Bank issued current FMC bonds for **CLP 750,000,000,000** and **UF 21,000,000**[455](index=455&type=chunk) - The Central Bank of Chile launched a special program for liquidity certificates (PDL) on September 26, 2023, with the Bank investing **MCh$1,903,008** in these instruments by October 24, 2023[456](index=456&type=chunk) - Transbank shareholder banks began the process of selling their stock ownership due to changes in the payment system model[487](index=487&type=chunk) [NOTE 06 - Business Segment](index=49&type=section&id=NOTE%2006%20-%20BUSINESS%20SEGMENT) The Bank manages operations through Retail Banking, Middle-market, Global Corporate Banking, and Corporate Activities, assessing performance based on various income and expense metrics - The Bank's business segments include Retail Banking (individuals and SMEs), Middle-market (companies and large corporations), Global Corporate Banking (foreign and Chilean multinational companies), and Corporate Activities ('Other') for unallocated activities and financial management[459](index=459&type=chunk)[476](index=476&type=chunk)[491](index=491&type=chunk)[492](index=492&type=chunk)[499](index=499&type=chunk) - Inter-segment transactions are conducted under normal commercial terms, and each segment's assets, liabilities, and results are directly attributable or reasonably allocable[490](index=490&type=chunk) Net Segment Contribution (9 months ended Sep 30, 2023) (MCh$) | Segment | Loans and receivables from clients (1) (MCh$) | Demand and time deposits (2) (MCh$) | Net Interest and adjustment Income (MCh$) | Net commission Income (MCh$) | Net gains on financial transactions (3) (MCh$) | Provisions (MCh$) | Support Expenses (4) (MCh$) | Net segment contribution (MCh$) | | :----------------------------- | :-------------------------------------------- | :---------------------------------- | :---------------------------------------- | :--------------------------- | :--------------------------------------------- | :---------------- | :-------------------------- | :------------------------------ | | Retail Banking | 28,179,460 | 13,592,425 | 1,023,549 | 290,631 | 31,889 | (319,252) | (493,764) | 533,053 | | Middle-market | 8,820,787 | 5,716,751 | 348,347 | 48,489 | 21,198 | (39,222) | (79,802) | 299,010 | | Corporate Investment Banking | 3,124,061 | 7,776,203 | 186,294 | 36,400 | 142,998 | 5,558 | (67,745) | 303,505 | | Corporate Activities ("Other") | (82,152) | 1,469,941 | (816,037) | 11,886 | 47,459 | 634 | (10,286) | (766,344) | | **Total** | **40,042,156** | **28,555,320** | **742,153** | **387,406** | **243,544** | **(352,282)** | **(651,597)** | **369,224** | [NOTE 07 - Cash and Cash Equivalents](index=54&type=section&id=NOTE%2007%20-%20CASH%20AND%20CASH%20EQUIVALENTS) Total cash and cash equivalents increased as of September 30, 2023, primarily driven by higher cash and deposits in domestic banks and cash in collection process Cash and Cash Equivalents (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Cash and deposits in banks | 2,411,594 | 1,982,942 | | Cash | 1,210,438 | 1,110,830 | | Deposits in the Central Bank of Chile| 59,687 | 444,491 | | Deposits in domestic banks | 1,140,363 | 424,975 | | Cash in collection process | 2,088,892 | 843,816 | | Total cash and cash equivalents | 2,466,085 | 2,079,886 | - Total cash and cash equivalents increased by **MCh$386,199** from December 31, 2022, to September 30, 2023[556](index=556&type=chunk) - Cash in collection process saw a substantial increase from **MCh$843,816** to **MCh$2,088,892**, indicating a higher volume of pending settlements[541](index=541&type=chunk) [NOTE 08 - Financial Assets Held for Trading at Fair Value with Changes in Profit and Loss](index=55&type=section&id=NOTE%2008%20-%20FINANCIAL%20ASSETS%20HELD%20FOR%20TRADING%20AT%20FAIR%20VALUE%20WITH%20CHANGES%20IN%20PROFIT%20AND%20LOSS) Financial assets held for trading increased as of September 30, 2023, primarily due to growth in financial derivative contracts and debt financial instruments Financial Assets Held for Trading at Fair Value with Changes in Profit and Loss (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Total Financial assets held for trading | 12,247,681 | 11,827,006 | | Financial derivatives contracts | 11,975,997 | 11,672,960 | | Debt financial instruments | 271,684 | 154,046 | | Currency forwards (Notional) | 55,174,288 | 34,652,380 | | Interest rate swaps (Notional) | 88,325,447 | 93,513,106 | | Currency and interest rate swaps (Notional) | 64,709,122 | 61,029,754 | - Financial derivatives contracts increased by **MCh$303,037**, from **MCh$11,672,960** to **MCh$11,975,997**[577](index=577&type=chunk) - Debt financial instruments saw a significant increase of **MCh$117,638**, from **MCh$154,046** to **MCh$271,684**[577](index=577&type=chunk) - Notional amount of Currency forwards increased by **MCh$20,521,908**, while Interest rate swaps decreased by **MCh$5,187,759**[577](index=577&type=chunk)[559](index=559&type=chunk) [NOTE 09 - Non-Marketable Financial Assets Mandatorily Measured at Fair Value Through Profit or Loss](index=57&type=section&id=NOTE%2009%20-%20NON-MARKETABLE%20FINANCIAL%20ASSETS%20MANDATORILY%20MEASURED%20AT%20FAIR%20VALUE%20THROUGH%20PROFIT%20OR%20LOSS) The Bank has no assets classified in the category of non-marketable financial assets mandatorily measured at fair value through profit or loss - The Bank has no assets classified in this category[580](index=580&type=chunk)[624](index=624&type=chunk) [NOTE 10 - Financial Assets and Liabilities Designated at Fair Value Through Profit or Loss](index=58&type=section&id=NOTE%2010%20-%20FINANCIAL%20ASSETS%20AND%20LIABILITIES%20DESIGNATED%20AT%20FAIR%20VALUE%20THROUGH%20PROFIT%20OR%20LOSS) The Bank has no financial assets or liabilities designated at fair value through profit or loss - The Bank has no assets classified in this category[581](index=581&type=chunk) [NOTE 11 - Financial Assets at Fair Value Through Other Comprehensive Income](index=59&type=section&id=NOTE%2011%20-%20FINANCIAL%20ASSETS%20AT%20FAIR%20VALUE%20THROUGH%20OTHER%20COMPREHENSIVE%20INCOME) Financial assets at fair value through other comprehensive income increased, primarily in debt instruments of the Chilean Central Bank and Government, with unrealized losses deemed not impaired Financial Assets at Fair Value Through Other Comprehensive Income (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Total Financial assets at FVOCI | 7,058,984 | 6,023,039 | | Debt financial instruments | 6,961,694 | 5,880,733 | | Instruments of the Chilean Central Bank and Government | 5,190,946 | 4,074,413 | | Unrealised profit (loss) | (125,900) | (109,392) | | Expected credit loss (Debt financial instruments) | 1,259 | 877 | | Expected credit loss (Commercial loans) | 136 | 326 | - Total financial assets at FVOCI increased by **MCh$1,035,945** from December 31, 2022, to September 30, 2023[625](index=625&type=chunk) - Unrealized profit (loss) for the period was **MCh$(125,900)** as of September 30, 2023, compared to **MCh$(109,392)** as of December 31, 2022[586](index=586&type=chunk) - The Bank concluded that instruments with unrealized losses were not impaired, attributing declines to temporary market conditions and its intention/ability to hold securities[605](index=605&type=chunk) [NOTE 12 - Financial Derivative Contracts for Hedge Accounting Purposes](index=63&type=section&id=NOTE%2012%20-%20FINANCIAL%20DERIVATIVE%20CONTRACTS%20FOR%20HEDGE%20ACCOUNTING%20PURPOSES) The Bank uses financial derivative contracts for micro- and macro-hedges of interest rate and foreign currency risks, maintaining high effectiveness in its hedging strategies Financial Derivative Contracts for Hedge Accounting Purposes (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Fair value hedge derivatives (Assets) | 487,004 | 289,326 | | Fair value hedge derivatives (Liabilities) | 1,536,701 | 1,499,436 | | Cash flow hedge derivatives (Assets) | 349,126 | 188,436 | | Cash flow hedge derivatives (Liabilities) | 887,268 | 1,289,358 | | Total Assets (Hedge Accounting) | 836,130 | 477,762 | | Total Liabilities (Hedge Accounting) | 2,423,969 | 2,788,794 | - The Bank uses cross-currency swaps, interest rate swaps, and call money swaps for fair value micro-hedges to cover interest rate risk, changing long-term issues from fixed to floating rates[612](index=612&type=chunk) - Cash flow micro-hedging involves cross-currency swaps, forwards, and cross-currency swaps to hedge interest rate and foreign currency fluctuations, as well as inflation risk[249](index=249&type=chunk) - Macro-hedges are applied to mortgage and commercial loan portfolios, with figures of **MCh$129,406** (assets) and **MCh$131,410** (liabilities) for mark-to-market valuation as of September 30, 2023[678](index=678&type=chunk)[688](index=688&type=chunk)[722](index=722&type=chunk) [NOTE 13 - Financial Assets at Amortised Cost](index=73&type=section&id=NOTE%2013%20-%20FINANCIAL%20ASSETS%20AT%20AMORTISED%20COST) Financial assets at amortised cost increased, primarily driven by loans and receivables from clients, with detailed movements in credit risk provisions and credit concentration Financial Assets at Amortised Cost (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Total Financial assets at amortised cost | 43,665,555 | 42,560,431 | | Rights under repurchase and securities lending agreements | 4,155 | 0 | | Debt financial instruments | 4,752,706 | 4,867,591 | | Interbank loans | 12,995 | 32,955 | | Loans and receivables from clients | 38,895,699 | 37,659,885 | | Provisions established for credit risk | (1,133,457) | (1,036,525) | - Loans and receivables from clients increased by **MCh$1,235,814**, reaching **MCh$38,895,699** as of September 30, 2023[707](index=707&type=chunk) - Provisions established for credit risk increased by **MCh$96,932**, reflecting changes in portfolio risk[707](index=707&type=chunk) - The concentration of credit risk by economic activity shows significant exposure in Real estate services (**MCh$2,580,098**) and Wholesale trade (**MCh$1,802,223**) as of September 30, 2023[1352](index=1352&type=chunk) [a. Rights under repurchase and securities lending agreements](index=74&type=section&id=a%2E%20Rights%20under%20repurchase%20and%20securities%20lending%20agreements) The Bank's net balances in instruments with rights under repurchase commitments amounted to MCh$4,155 as of September 30, 2023, with a MCh$1 million credit risk impairment - As of September 30, 2023, the Bank's net balances in instruments with rights under repurchase commitments amount to **MCh$4,155**[709](index=709&type=chunk) - The credit risk impairment for these rights is **MCh$1 million**[709](index=709&type=chunk) [b. Debt financial instruments](index=74&type=section&id=b%2E%20Debt%20financial%20instruments) Debt financial instruments, primarily from the Chilean Central Bank and Government, totaled MCh$4,753,711, with provisions for credit risk increasing to MCh$1,005 Debt Financial Instruments (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Debt financial instruments | 4,753,711 | 4,868,485 | | Instruments of the Chilean Central Bank and Government | 4,753,711 | 4,868,485 | | Accrued impairment on debt financial instruments | (1,005) | (894) | - Provisions for credit risk on debt financial instruments amounted to **MCh$1,005** as of September 30, 2023, an increase from **MCh$894** at December 31, 2022[681](index=681&type=chunk)[709](index=709&type=chunk) [c. Interbank loans](index=76&type=section&id=c%2E%20Interbank%20loans) Interbank loans significantly decreased from December 31, 2022, to September 30, 2023, with a corresponding reduction in provisions for foreign bank loans Interbank Loans (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Total Interbank loans | 13,000 | 32,991 | | Foreign trade loans Chilean exports | 13,000 | 32,991 | | Established provisions | 5 | 36 | - Interbank loans decreased significantly from **MCh$32,991** at December 31, 2022, to **MCh$13,000** at September 30, 2023[697](index=697&type=chunk)[699](index=699&type=chunk) - Provisions for loans to foreign banks decreased from **MCh$36** to **MCh$5** over the same period[697](index=697&type=chunk)[699](index=699&type=chunk) [d. Loans and receivables from clients](index=78&type=section&id=d%2E%20Loans%20and%20receivables%20from%20clients) Net financial assets from loans and receivables increased, driven by growth in commercial and mortgage loans, alongside an increase in credit risk provisions Loans and Receivables from Clients (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Commercial loans | 17,938,478 | 17,684,589 | | Mortgage loans | 16,650,160 | 15,729,009 | | Consumer loans | 5,440,518 | 5,282,812 | | Provisions established for credit risk | (1,133,457) | (1,036,525) | | Net financial assets | 38,895,699 | 37,659,885 | - Net financial assets from loans and receivables increased by **MCh$1,235,814** from December 31, 2022, to September 30, 2023[707](index=707&type=chunk) - Commercial loans increased by **MCh$253,889**, while mortgage loans increased by **MCh$921,151**[707](index=707&type=chunk) - Provisions for commercial loans increased from **MCh$(641,014)** to **MCh$(665,657)**[707](index=707&type=chunk) [e. Contingent loan balances](index=80&type=section&id=e%2E%20Contingent%20loan%20balances) Contingent loan exposure for guarantees and sureties decreased significantly, while established provisions for contingent loans saw a slight increase Contingent Loan Balances (MCh$) | Metric | Sep 30, 2023 (MCh$) | Dec 31, 2022 (MCh$) | | :----------------------------------- | :------------------ | :------------------ | | Guarantees and sureties | 574,452 | 924,172 | | Letters of credit for goods movement operations | 38,005 | 51,104 | | Transactions related to contingent events | 772,954 | 757,433 | | Immediately repayable unrestricted credit lines | 1,008,473 | 972,244 | | Credits for higher studies Law No 20:027 (CAE) | 335,817 | 343,430 | | Other irrevocable credit commitments | 0 | 0 | | Established provisions | 17,500 | 17,218 | - Contingent loan exposure for Guarantees and sureties decreased significantly from **MCh$924,172** to **MCh$574,452**[263](index=263&type=chunk)[719](index=719&type=chunk) - Established provisions for contingent loans increased slightly from **MCh$17,218** to **MCh$17,500**[263](index=263&type=chunk)[719](index=719&type=chunk) [f. Breakdown of movement in established provisions - Receivable from banks](index=81&type=section&id=f%2E%20Breakdown%20of%20movement%20in%20established%20provisions%20-%20Receivable%20from%20banks) Provisions for receivables from banks remained stable at MCh$36, with new loans originated offset by payments from loans Breakdown of Movement in Established Provisions - Receivable from Banks (MCh$) | Metric (Receivable from banks) | Jan 1, 2023 (MCh$) | Sep 30, 2023 (MCh$) | | :----------------------------------- | :----------------- | :------------------ | | Balance as of January 1, 2023 | 36 | 36 | | New loans originated | 98 | 98 | | Paid from loans | (128) | (128) | | Exchange rate difference | (1) | (1) | | Other changes in provisions | 5 | 5 | | Balance as of September 30, 2023 | 36 | 36 | - The balance of provisions for receivables from banks remained stable at **MCh$36** from January 1 to September 30, 2023[721](index=721&type=chunk) - New loans originated added **MCh$98**, while payments from loans reduced provisions by **MCh$128**[721](index=721&type=chunk) [g. Breakdown of movement in established provisions - Commercial Loans](index=82&type=section&id=g%2E%20Breakdown%20of%20movement%20in%20established%20provisions%20-%20Commercial%20Loans) Provisions for commercial loans increased from January 1 to September 30, 2023, influenced by new originations, payments, and charge-offs Breakdown of Movement in Established Provisions - Commercial Loans (MCh$) | Metric (Commercial Loans) | Jan 1, 2023 (MCh$) | Sep 30, 2023 (MCh$) | | :----------------------------------- | :----------------- | :------------------ | | Balance as of January 1, 2023 | 641,014 | 641,014 | | Change in measurement without portfolio reclassifying | 199,724 | 199,724 | | New loans originated | 339,401 | 339,401 | | Paid from loans | (498,177) | (498,177) | | Provision application for charge-offs | (49,072) | (49,072) | | Exchange rate difference | 6,013 | 6,013 | | Balance as of September 30, 2023 | 665,657 | 665,657 | - Provisions for commercial loans increased from **MCh

lssuance of first green mortgage bond in Chile | --- | --- | --- | --- | --- | --- | |--------------------------------------------------------------------|---------|--------------|--------------|--------------|--------------| | 1. Among the best top 10 companies to work for in Chile (#) | GPTW #1 | Top Employer | Top Employer | Top Employer | Top Employer | | 2. Women in managerial positions (%) | 25 % | 28% | 31% | 28% | 30% | | 3. Eliminate gender pay gap (%) | 3.1 % | 2.5 % | 2.4% | 2.1% | 0 % | | 4. Peo ...

Banco Santander-Chile (NYSE:BSAC) Q3 2023 Earnings Conference Call November 3, 2023 10:00 AM ET Company Participants Emiliano Muratore - Chief Financial Officer Cristian Vicuna - Chief, Strategic Planning and IR Carmen Gloria Silva - Economist Conference Call Participants Yuri Fernandes - JPMorgan Daniel Mora Ardila - Credicorp Capital Neha Agarwala - HSBC Global Research Ernesto Gabilondo - Bank of America Nicolas Riva - Bank of America Operator Ladies and gentlemen, thank you for standing by. And I would ...

INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the periods ending on June 30, 2023, and 2022, and December 31, 2022 RUT: 81.513.400-1 | Teléfono: (56 2) 2940 0000 | www.pwc.cl Interim Consolidated Financial Statements June 2023 / Banco Santander-Chile Interim Consolidated Financial Statements June 2023 / Banco Santander-Chile Interim Consolidated Financial Statements June 2023 / Banco Santander-Chile We conducted our review in accordance with Generally Accepted Auditing Standards in Chile applicable to revie ...

[Management Commentary Overview](index=1&type=section&id=Management%20Commentary%20Overview) This section presents PwC Chile's review of the Management Commentary and highlights the forward-looking nature of the report [Independent Professional Review Report](index=2&type=section&id=Independent%20Professional%20Review%20Report) PwC Chile reviewed the 6M23 Management Commentary, finding no material modifications needed for CMF compliance, though it was not a full audit - The review concluded that no material modifications are needed for the Management Commentary to align with CMF requirements[4](index=4&type=chunk) - The review was conducted in accordance with Chilean auditing standards and was significantly less in scope than a full audit[365](index=365&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This document contains forward-looking statements about future business and economic performance, subject to various risks and uncertainties - The report includes forward-looking statements concerning future business and economic performance, which are subject to risks and uncertainties[5](index=5&type=chunk) - Key risk factors include macroeconomic trends, market movements, competitive pressures, technological developments, and customer creditworthiness[5](index=5&type=chunk) [Section 1: Key information](index=5&type=section&id=Section%201%3A%20Key%20information) This section summarizes the bank's 6M23 financial results, key indicators, and competitive market position, highlighting profitability declines and market leadership [Summary of results](index=5&type=section&id=Summary%20of%20results) 6M23 net income attributable to shareholders decreased 49.6% YoY to Ch$262,870 million, with ROAE at 12.9%, mainly due to lower NIM - Net income attributable to shareholders decreased **49.6% YoY** to **Ch$262,870 million** in 6M23, with an ROAE of **12.9%**[402](index=402&type=chunk) - The decrease in net income was mainly due to a lower Net Interest Margin (NIM) caused by slowing inflation and higher funding costs[402](index=402&type=chunk) - Despite the profit decline, net fee income increased by **38.5% YoY**, and the net contribution from business segments grew by **38.8% YoY**[8](index=8&type=chunk)[375](index=375&type=chunk) [Key financial information](index=6&type=section&id=Key%20financial%20information) June 2023 key financial indicators show declining profitability (ROAE 12.9%, NIM 2.1%) and asset quality (NPL 2.1%), but strong capital ratios Key Financial Indicators (Jun-23 vs Jun-22) | Indicator | Jun-23 | Jun-22 | Variation | | :--- | :--- | :--- | :--- | | **Profitability** | | | | | Net Interest Margin (NIM) | 2.1% | 4.1% | (197) bp | | Return on avg. equity | 12.9% | 28.7% | (1,583) bp | | **Asset Quality** | | | | | NPL ratio | 2.1% | 1.5% | 67 bp | | Coverage of NPLs ratio | 165.0% | 227.8% | (6,280) bp | | Cost of credit | 1.19% | 0.87% | 33 bp | | **Capital** | | | | | Core capital ratio | 11.0% | 11.1% | (12) bp | | BIS ratio | 17.5% | 17.8% | (26) bp | | **Clients** | | | | | Total clients | 3,737,056 | 4,028,551 | (7.2%) | | Active clients | 2,186,435 | 2,081,909 | 5.0% | Market Capitalization (YTD) | Indicator | Jun-23 | Jun-22 | Variation % | | :--- | :--- | :--- | :--- | | Net income per share (Ch$) | 1.39 | 2.77 | (49.6%) | | Net income per ADR (US$) | 0.70 | 1.20 | (41.9%) | | Market capitalization (US$ million) | 8,895 | 7,750 | 14.8% | [Competitive position](index=8&type=section&id=Competitive%20position) Banco Santander Chile leads the Chilean market in key loan and account categories, maintaining high investment-grade credit ratings - The bank is the market leader in total loans (**17.3% share**), mortgage loans (**21.1%**), consumer loans (**19.4%**), current accounts (**27.5%**), and credit card purchases (**23.2%**)[407](index=407&type=chunk) - The bank holds high credit ratings from multiple agencies, such as **A2 from Moody's**, **A- from S&P**, and **A+ from JCR**, all with a Stable Outlook[14](index=14&type=chunk) [Section 2: Business environment](index=8&type=section&id=Section%202%3A%20Business%20environment) This section details Chile's weakening economic conditions, moderating inflation, anticipated interest rate cuts, and significant political and regulatory developments [Operating environment](index=9&type=section&id=Operating%20environment) Chile's economy faces weakening demand and a weak labor market, with moderating inflation and anticipated Central Bank interest rate cuts - Domestic demand is weakening, leading to a downward revision of the 2023 GDP growth forecast to **-1.0%**[385](index=385&type=chunk) - The labor market remains weak, with near-zero job creation and contracting labor demand, potentially pushing unemployment above **8%**[15](index=15&type=chunk) - Inflation is decreasing, with the annual CPI expected to fall below **4%** by the end of 2023. The Central Bank is expected to start cutting the MPR, forecasting a rate of **7.25%** by year-end[16](index=16&type=chunk)[387](index=387&type=chunk) Economic Forecasts | Indicator | 2022 | 2023 (E) | 2024 (E) | | :--- | :--- | :--- | :--- | | GDP (real var. % YoY) | 2.4% | (1.0%) | 2.0% | | CPI Inflation | 12.6% | 3.9% | 3.0% | | Monetary policy rate (year-end) | 11.25% | 7.25% | 3.75% | [Political and Regulatory Environment](index=11&type=section&id=Political%20and%20Regulatory%20Environment) Chile is undergoing a constitutional process, approved a new mining royalty tax, proposed pension reform, and implemented new interchange fee limits - A new constitutional process is underway, with a mandatory referendum on the new draft scheduled for December 17, 2023[389](index=389&type=chunk) - A major tax reform was rejected, but a new mining royalty tax was approved in May 2023, expected to collect **0.45% of GDP** starting in 2024[21](index=21&type=chunk)[47](index=47&type=chunk) - A pension reform bill proposed in November 2022 aims to create a mixed system with an additional **6% employer contribution** to a social security fund[391](index=391&type=chunk) - New, lower interchange fee limits for debit, credit, and prepaid cards were approved and will be implemented gradually through November 2024[23](index=23&type=chunk)[392](index=392&type=chunk) - The Fogaes Law was enacted to provide state guarantees for housing and construction financing, as well as for working capital and investment for SMEs[24](index=24&type=chunk)[50](index=50&type=chunk) [Section 3: Segment information](index=15&type=section&id=Section%203%3A%20Segment%20information) This section analyzes the net contribution of Retail, Middle Market, and CIB segments, which collectively grew 38.8% YoY, alongside a significant loss in Corporate Activities [Results by segment](index=15&type=section&id=Results%20by%20segment) 6M23 total net contribution from business segments grew 38.8% YoY, driven by strong revenue, while Corporate Activities reported a significant net loss Net Contribution by Business Segment (6M23, Ch$ million) | Segment | Net Contribution | Change YoY | | :--- | :--- | :--- | | Retail Banking | 338,022 | 21.0% | | Middle market | 212,321 | 38.0% | | CIB | 207,144 | 84.5% | | **Total Business sub-segments** | **757,487** | **38.8%** | | Corporate activities | (461,393) | (473.4%) | | **Total** | **296,094** | **(55.8%)** | [Retail banking](index=17&type=section&id=Retail%20banking) Retail Banking's net contribution grew 21.0% YoY, driven by increased net interest income and fees, despite a 57.4% rise in loan provisions - Net contribution increased **21.0% YoY**, driven by a better funding mix, loan growth, and a **29.3% surge in fees**[61](index=61&type=chunk) - Loans in the segment grew **2.4% YTD** and **1.3% QoQ**, primarily led by mortgage loans and credit cards[60](index=60&type=chunk) - Provisions rose **57.4% YoY**, reflecting portfolio growth and the normalization of asset quality as the economy slows[61](index=61&type=chunk) [Middle market](index=18&type=section&id=Middle%20market) Middle Market's net contribution grew 38.0% YoY, fueled by a 21.6% rise in total revenues and a 35.4% decrease in loan loss provisions - Net contribution grew **38.0% YoY**, supported by a **22.8% increase in net interest income** from better spreads and volume growth[35](index=35&type=chunk) - Loan loss provisions fell **35.4% YoY**, mainly because higher-risk loans from sectors like construction were eliminated from the portfolio during 2022[35](index=35&type=chunk) [Corporate Investment Banking (CIB)](index=19&type=section&id=Corporate%20Investment%20Banking%20%28CIB%29) CIB's net contribution surged 84.5% YoY, driven by strong income and fee growth, though quarterly performance saw an 11.3% QoQ decline - Net contribution increased **84.5% YoY**, with total income up **53.0%**. This was driven by a **76.9% rise in net interest income** and a **54.1% increase in fees**[431](index=431&type=chunk) - Deposits grew **12.5% YTD**, driven by higher demand for time deposits in CLP due to attractive rates[37](index=37&type=chunk) - Net contribution decreased **11.3% QoQ**, primarily because of lower revenues from financial transactions following an exceptionally strong 1Q23[68](index=68&type=chunk) [Corporate center/ Financial Management](index=20&type=section&id=Corporate%20center%2F%20Financial%20Management) The Corporate Center reported a net loss of Ch$461,393 million in 6M23, primarily due to margin compression from higher funding costs and lower investment returns - The segment recorded a net loss of **Ch$461,393 million** in 6M23, primarily due to margin compression from higher funding costs and lower returns on the investment portfolio[39](index=39&type=chunk)[433](index=433&type=chunk) - The net loss widened by **4.6% QoQ** in 2Q23 as high interest rates and lower inflation continued to negatively impact margins[70](index=70&type=chunk) [Section 4: Balance sheet and results](index=22&type=section&id=Section%204%3A%20Balance%20sheet%20and%20results) This section provides an in-depth analysis of the bank's balance sheet, including loan and deposit growth, capital adequacy, and income statement performance, highlighting NII decline and strong non-interest income [Balance Sheet Analysis](index=22&type=section&id=Balance%20Sheet%20Analysis) As of June 2023, total loans grew 1.3% YTD, deposits rose 4.1% YTD with a shift to time deposits, and the bank maintained strong capital ratios Loan Portfolio Breakdown (Ch$ million) | Loan Type | Jun-23 | Var % YTD | Var % QoQ | | :--- | :--- | :--- | :--- | | Consumer loans | 5,411,860 | 2.4% | 1.3% | | Residential mortgage loans | 16,407,125 | 4.3% | 2.4% | | SME | 3,556,013 | (3.6%) | (0.6%) | | **Total Gross Loans** | **39,362,284** | **1.3%** | **0.6%** | - Total deposits increased **4.1% YTD**, driven by a **14.7% rise in time deposits** as clients sought higher yields, while demand deposits fell **5.8%**[115](index=115&type=chunk)[135](index=135&type=chunk) - The bank maintained strong capital adequacy, with a **CET1 ratio of 11.0%** and a total **BIS ratio of 17.5%** at the end of June 2023[139](index=139&type=chunk) - Total equity increased **6.3% QoQ** and **1.2% YTD**, reaching **Ch$4,287,883 million**, influenced by earnings and a lower negative impact from valuation adjustments[138](index=138&type=chunk) [Income Statement Analysis](index=28&type=section&id=Income%20Statement%20Analysis) In 6M23, NII fell 44.5% YoY due to lower inflation and higher funding costs, offset by strong non-interest income and effective cost control - Net income from interest and readjustments decreased **44.5% YoY** in 6M23, primarily due to lower inflation (UF variation of **2.8% in 6M23 vs. 6.8% in 6M22**) and higher funding costs[144](index=144&type=chunk)[157](index=157&type=chunk) - Net fee income grew **38.5% YoY**, driven by increased client activity, higher card usage, and contributions from Getnet. The recurrence ratio improved to **60.6% from 40.5%**[152](index=152&type=chunk) - Credit loss expenses rose **42.4% YoY**, with the cost of credit increasing to **1.19% from 0.87%** as asset quality trends back toward pre-pandemic levels[162](index=162&type=chunk) - Operating expenses fell **7.5% YoY**, reflecting solid cost control and productivity gains, although the efficiency ratio worsened to **45.4%** due to lower operating income[98](index=98&type=chunk)[185](index=185&type=chunk) - Income tax expense decreased **71.5% YoY** due to lower pre-tax profits and a lower effective tax rate (**8.3% vs 14.0%**) resulting from the monetary correction of the capital tax base in a high CPI environment[76](index=76&type=chunk) [Section 5: Guidance](index=38&type=section&id=Section%205%3A%20Guidance) This section outlines the bank's financial targets for 2023, including expected loan growth, NIM, non-interest income growth, cost of credit, ROE, and CET1 ratio [2023 Guidance](index=38&type=section&id=2023%20Guidance) For FY2023, the bank expects approximately 5% loan growth, a 2.3% NIM, 20% non-interest income growth, and an ROE of around 15% Full Year 2023 Guidance | Indicator | Guidance | Key Factor | | :--- | :--- | :--- | | Loans | Approx. 5% growth | Economic growth | | NIM | 2.3% | Inflation, MPR reduction speed | | Non-NII | Growth of 20% | Client growth and product usage | | Costs | Negative growth vs 2022 | Inflation, productivity, investment | | Cost of credit | 1.1 - 1.2% | Asset quality normalization | | ROE | Approx. 15% | Rate and inflation scenarios | | CET1 | > 10.5% | ROE, RWA growth, dividend policy | - The bank maintains its long-term ROE expectation in the range of **17%-19%**[80](index=80&type=chunk) [Section 6: Risks](index=39&type=section&id=Section%206%3A%20Risks) This section details the bank's management of credit, market, liquidity, and operational risks, including asset quality trends, strong liquidity ratios, and operational loss increases [Credit Risk](index=39&type=section&id=Credit%20Risk) Credit risk management focuses on economic slowdown, with the NPL ratio increasing to 2.1% and impaired loan ratio to 5.4%, reflecting asset quality normalization - Provisions are estimated using expected loss models, classifying commercial debtors into Normal, Substandard, and Impaired portfolios based on creditworthiness[82](index=82&type=chunk)[85](index=85&type=chunk) Asset Quality Ratios | Ratio | Jun-23 | Dec-22 | Jun-22 | | :--- | :--- | :--- | :--- | | NPL ratio | 2.1% | 1.8% | 1.5% | | Impaired loan ratio | 5.4% | 4.8% | 4.7% | | NPL coverage ratio | 165.0% | 185.3% | 227.8% | | Expected loss ratio | 2.8% | 2.7% | 2.7% | - The loan portfolio is diversified, with the largest exposures to mortgage (**45.0%**), social services (**30.2% of commercial loans**), and commerce (**17.3% of commercial loans**)[178](index=178&type=chunk) [Market and Liquidity Risk](index=45&type=section&id=Market%20and%20Liquidity%20Risk) The bank actively manages market risks, maintaining strong liquidity with LCR at 153.3% and NSFR at 108.5%, both well above regulatory minimums - The bank maintains strong liquidity, with an **LCR of 153.3%** and an **NSFR of 108.5%** as of June 2023[116](index=116&type=chunk)[184](index=184&type=chunk)[201](index=201&type=chunk) - High-Quality Liquid Assets (HQLA) amounted to **Ch$6,573,100 million**, primarily composed of Level 1 assets like government bonds[197](index=197&type=chunk) - Interest rate risk for the trading portfolio is managed using Value at Risk (VaR) limits, with the consolidated average VaR at **US$5.54 million** as of June 30, 2023[203](index=203&type=chunk)[204](index=204&type=chunk) - The bank has more assets than liabilities indexed to the UF (inflation-indexed unit), creating a positive sensitivity to moderate inflation rises, which is managed within established limits[205](index=205&type=chunk) [Operational Risk](index=50&type=section&id=Operational%20Risk) Total operational losses increased 31.4% YoY, primarily due to higher client/product, processing, and fraud-related losses Operational Risk Losses (Ch$ million) | Loss Category | Jun-23 | Jun-22 | Change % | | :--- | :--- | :--- | :--- | | Fraud | 1,567 | 1,387 | 13.0% | | Labor related | 2,977 | 2,997 | (0.7%) | | Client / product related | 468 | 44 | 972.6% | | Processing | 2,311 | 1,245 | 85.7% | | **Total** | **7,500** | **5,707** | **31.4%** | [Section 7: Credit risk ratings](index=52&type=section&id=Section%207%3A%20Credit%20risk%20ratings) Banco Santander Chile maintains strong investment-grade credit ratings from international and local agencies, all with a stable outlook [Credit Ratings](index=52&type=section&id=Credit%20Ratings) Banco Santander Chile maintains strong investment-grade credit ratings from international and local agencies, all with a stable outlook International and Local Credit Ratings | Agency | Rating Type | Rating | | :--- | :--- | :--- | | **International** | | | | Moody's | Bank Deposit | A2/P-1 | | Standard & Poor's | Long-term Issuer Credit | A- | | JCR | Foreign Currency Long-term | A+ | | **Local** | | | | Feller Rate | Long-term deposits | AAA | | ICR | Long-term deposits | AAA | [Section 8: Stock Performance](index=53&type=section&id=Section%208%3A%20Stock%20Performance) This section provides an overview of the bank's shareholding structure, dividend policy, and key stock performance indicators as of June 30, 2023 [Shareholding and Stock Information](index=53&type=section&id=Shareholding%20and%20Stock%20Information) As of June 2023, Santander Group holds 67% of shares, with 33% free float, and the bank maintains a 60% dividend payout policy - The shareholding structure consists of **67% held by the Santander Group** and **33% free float**[212](index=212&type=chunk) Stock Information as of June 30, 2023 | Indicator | Value | | :--- | :--- | | ADR Price (US$) | 18.85 | | Local Share Price (Ch$) | 37.94 | | Market Cap (US$ million) | 8,895 | | P/E (last 12 months) | 10.0x | | P/BV | 1.73 | | Dividend Yield | 6.8% | - The bank has a consistent dividend policy, paying out **60% of the previous year's earnings**[236](index=236&type=chunk) [Annex 1: Strategy and responsible banking](index=54&type=section&id=Annex%201%3A%20Strategy%20and%20responsible%20banking) This annex details the bank's strategic framework, commitment to responsible banking and ESG goals, and progress in digital transformation and client focus [Strategy and Culture](index=54&type=section&id=Strategy%20and%20Culture) The bank's strategy, guided by 'The Santander Way,' focuses on customer-centric processes, technology, and high performance through its 'Chile First' initiative - The bank's guiding model is 'The Santander Way,' with a mission to earn loyalty by acting responsibly and a style defined as Simple, Personal, and Fair[237](index=237&type=chunk)[260](index=260&type=chunk) - The 'Chile First' initiative focuses on developing an outstanding operation based on technology, customer-focused processes, specialization in corporate services, and attracting top talent[264](index=264&type=chunk)[240](index=240&type=chunk) [Responsible Banking and ESG](index=55&type=section&id=Responsible%20Banking%20and%20ESG) Santander is committed to responsible banking with goals including financially empowering 4 million people and achieving carbon neutrality, reflected in strong ESG ratings - The bank has 10 responsible banking goals, including financially empowering **4 million people by 2025** (**2.7 million achieved by June 2023**) and achieving carbon neutrality in operations by 2025[269](index=269&type=chunk) - Progress has been made on gender equality, with women holding **30.3% of management positions** and the gender pay gap reduced to **2.1%**[244](index=244&type=chunk)[269](index=269&type=chunk) - The bank holds strong ESG ratings, including an **'A' from MSCI** and is included in the FTSE4Good index[293](index=293&type=chunk) [Digital Transformation and Client Focus](index=59&type=section&id=Digital%20Transformation%20and%20Client%20Focus) The bank's digital strategy has resulted in nearly 2 million digital clients, optimized branch networks, and a top-ranking Net Promoter Score (NPS) - Digital clients reached nearly **2 million**, representing **90.5% of active clients**. Digital onboarding initiatives are key to growth and financial inclusion[273](index=273&type=chunk)[297](index=297&type=chunk) - The bank's market share in checking accounts is **27.4%**, and it has a **38.2% share in US dollar checking accounts**, driven by easy online opening[274](index=274&type=chunk) - The branch network is being optimized, with a **16.1% YoY decrease in branches** and a shift to the Work/Café model. This has improved productivity per employee by **6.8% YoY**[305](index=305&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk) - The bank holds the top position in Net Promoter Score (NPS) among its main Chilean peers[308](index=308&type=chunk) [Latest events and material facts](index=67&type=section&id=Latest%20events%20and%20material%20facts) The bank approved a 60% dividend payout, actively issued bonds, agreed to sell its stake in Transbank, and faced a fine for not reporting suspicious transactions [Corporate Actions and Events](index=67&type=section&id=Corporate%20Actions%20and%20Events) The bank approved a 60% dividend payout, actively issued bonds, agreed to sell its stake in Transbank, and faced a fine for not reporting suspicious transactions - A dividend of **Ch$2.57 per share**, representing **60% of 2022 profits**, was approved at the April 2023 Shareholders' Meeting[318](index=318&type=chunk)[335](index=335&type=chunk) - The bank has actively issued bonds in local (CLP, UF) and international (USD, JPY) markets throughout 2023 to manage its funding[320](index=320&type=chunk)[323](index=323&type=chunk)[325](index=325&type=chunk) - Shareholder banks, including Santander, have agreed to sell their stake in Transbank as part of a move to a four-part payment system model[321](index=321&type=chunk) - The Supreme Court applied a fine of **800 UF** to the bank for not reporting suspicious transactions in a timely manner[447](index=447&type=chunk) [Financial Statements Annexes](index=75&type=section&id=Financial%20Statements%20Annexes) This section provides detailed consolidated financial statements, including the balance sheet, income statements (YTD and quarterly), and a quarterly evolution of main financial ratios [Annex 2: Balance Sheet](index=75&type=section&id=Annex%202%3A%20Balance%20sheet) This annex provides the detailed consolidated balance sheet as of June 30, 2023, showing the composition of assets, liabilities, and equity Consolidated Balance Sheet Summary (Ch$ Million) | Item | Jun-23 | Dec-22 | % Chg. | | :--- | :--- | :--- | :--- | | **Total Assets** | **68,681,981** | **68,164,604** | **0.8%** | | Financial assets at amortized cost | 42,933,416 | 42,560,431 | 0.9% | | **Total Liabilities** | **64,394,098** | **63,926,232** | **0.7%** | | Deposits and other demand liabilities | 13,272,010 | 14,086,226 | (5.8%) | | Time deposits and other time liabilities | 14,892,389 | 12,978,790 | 14.7% | | **Total Equity** | **4,287,883** | **4,238,372** | **1.2%** | [Annex 3 & 4: Income Statements (YTD and Quarterly)](index=76&type=section&id=Annex%203%20%26%204%3A%20Income%20Statements) These annexes present detailed year-to-date and quarterly income statements for 6M23, 2Q23, 1Q23, and 2Q22 Income Statement Summary - YTD (Ch$ Million) | Item | Jun-23 | Jun-22 | % Chg. | | :--- | :--- | :--- | :--- | | Net income from Interest and readjustment | 530,992 | 957,550 | (44.5%) | | Net fee and commission income | 265,856 | 191,969 | 38.5% | | Total operating Income | 967,703 | 1,252,458 | (22.7%) | | Credit loss expenses | (231,587) | (162,602) | 42.4% | | **Income attributable to shareholders** | **262,870** | **521,257** | **(49.6%)** | [Annex 5: Quarterly Evolution of Main Ratios](index=77&type=section&id=Annex%205%3A%20Quarterly%20evolution%20of%20main%20ratios%20and%20other%20information) This annex provides a time-series view of key financial data and performance ratios over the last five quarters (2Q22 to 2Q23) Quarterly Ratio Evolution | Ratio | 2Q22 | 4Q22 | 1Q23 | 2Q23 | | :--- | :--- | :--- | :--- | :--- | | Net Interest margin (NIM) | 4.5% | 3.9% | 2.2% | 2.0% | | Efficiency ratio | 38.0% | 52.4% | 44.4% | 46.3% | | Return on avg. Equity | 31.7% | 10.1% | 13.3% | 12.6% | | Core Capital ratio (CET1) | 9.6% | 11.1% | 10.5% | 11.0% | | NPLs / total loans | 1.5% | 1.8% | 1.9% | 2.1% |

Financial Data and Key Metrics Changes - The bank's accumulated net income as of June 2023 totaled CLP263 billion, decreasing 50% year-over-year [57] - The book value of equity increased 16% year-over-year, with TNAV per share and dividend per share growing 23% [28] - The NPL ratio rose to 2.1%, gradually returning to pre-pandemic levels, with coverage of NPLs reaching 165% [34] Business Line Data and Key Metrics Changes - Retail banking results increased 21% year-over-year, driven by a greater client base and increased activity [14] - Getnet, the acquiring business, grew 83% year-over-year in SME clients, generating fees of CLP21 billion [11] - Corporate Investment Banking (CIB) results increased 84.5% year-over-year, with a significant rise in deposit spreads and fees [58] Market Data and Key Metrics Changes - The Central Bank of Chile began a monetary easing cycle, cutting the policy rate by 100 basis points [6] - The peso depreciated due to global factors, with inflation expected to close 2023 at around 4% [21] - Total deposits increased 0.3% quarter-on-quarter and 2% year-over-year, driven by a 25% year-over-year increase in time deposits [61] Company Strategy and Development Direction - The company aims to become a digital bank with Work/Cafes, focusing on customer service and technological innovation [23] - The strategy includes specialized services for corporate and private banking, seeking growth opportunities and sustainable transformation [23] - The bank is committed to maintaining cost discipline while investing in digital transformation [17] Management's Comments on Operating Environment and Future Outlook - Management expects a weak economy in the coming months, with a revised GDP contraction estimate of 1% for the year [5] - The bank anticipates a recovery in NIMs due to the Central Bank's easing cycle, projecting a NIM of 2.3% for the full year [38] - The cost of risk is expected to remain manageable at 1.1% to 1.2% for the rest of the year [38] Other Important Information - The bank's liquidity coverage ratio (LCR) was 175%, well above the minimum requirement [62] - The bank's operating expenses decreased 7.5% year-over-year, indicating effective cost control [36] - The bank is the only Chilean bank included in the Dow Jones Sustainability Index for Global Emerging Companies [27] Q&A Session Summary Question: NIM projection for 2024 - Management expects NIM for 2024 to be around 3.5%, with a potential rebound to 3% by the end of 2023 [41] Question: Impact of FCIC facility repayment and derivatives expiration - The expiration of the FCIC will be non-material for NII, as it will not significantly affect the overall NIM [43] Question: Effective tax rate normalization - The effective tax rate is expected to increase as inflation decreases, returning to levels closer to 20%-23% [97] Question: Reserve coverage ratio - The bank is comfortable maintaining the reserve coverage ratio at current levels due to significant voluntary provisions [72] Question: Non-NII growth expectations - Non-NII growth is expected to continue at around 10% for 2024 and 2025, despite headwinds from interchange fees [100] Question: Asset quality and NPL concerns - The commercial NPL has increased slightly, but management does not foresee significant risks in the portfolio [84]

Financial Data and Key Metrics Changes - In Q1 2023, net income totaled CLP 136 billion, a decrease of 42% year-over-year but an increase of 33% quarter-on-quarter [61] - The bank's return on equity (ROE) for the quarter reached 13%, with guidance for the full year adjusted to 15% to 17% due to higher than expected interest rates [70][114] - The net interest margin (NIM) remained stable at 2.2% quarter-on-quarter, with expectations for a decline to 2.4% for the year [64][69] Business Line Data and Key Metrics Changes - Retail banking loans grew by 1.1% quarter-on-quarter, driven by consumer loans, while origination of new mortgage loans has decelerated [63] - The net contribution from corporate and investment banking (CIB) increased by 76.7% year-over-year, with the middle market segment seeing a 31% increase [38] - Non-net interest income from fees and treasury rose by 33.8% year-over-year and 20% quarter-on-quarter, indicating strong performance across all segments [66] Market Data and Key Metrics Changes - The Chilean economy contracted by 2.5% in Q1 2023, with expectations for a mild contraction of around -0.25% for the year [19] - Inflation is projected to decrease to 5.1% by the end of the year, with the central bank maintaining a monetary policy rate of 11.25% [7][21] - The trade balance reached a surplus of CLP 7.5 billion, a historical record, with expectations for a current account deficit of 4% of GDP [6] Company Strategy and Development Direction - The bank aims to be a digital-first institution, focusing on specialized services for corporate and wealth management, and exploring new growth opportunities [12] - The introduction of Work/Café Expresso branches aims to enhance customer experience and operational efficiency, serving over 50,000 people weekly with a high NPS of 96 [13] - The bank is committed to sustainable finance, having supported sustainable operations for an amount of $230 million in 2022, a 390% increase from 2021 [33] Management's Comments on Operating Environment and Future Outlook - Management expects a gradual normalization of interest rates starting in the third quarter of 2023, which will positively impact ROE and NIM [54][70] - The bank anticipates continued strong client growth driven by digital initiatives and new product offerings, despite a challenging macroeconomic environment [45] - The outlook for asset quality remains stable, with a cost of credit expected to be manageable at 1.1% to 1.2% [69] Other Important Information - The bank's liquidity coverage ratio was 182%, well above the minimum requirement, indicating strong liquidity levels [41] - The core equity ratio at the end of Q1 2023 was 10.5%, reflecting a solid capital position [44] - The bank's operating expenses decreased by 1.2% year-over-year, with a focus on cost control and digitalization investments [67] Q&A Session Summary Question: What led to the reduction in ROE guidance? - Management indicated that the adjustment was primarily due to higher than expected interest rates, impacting the normalization process of NIMs and ROE [72][114] Question: Are there any regulatory changes expected? - Currently, there are no significant regulatory issues on the agenda that could affect the bank in the near term [73] Question: What is the outlook for operating expenses? - Management expects a one-off performance in cost control for this year, with a target for costs to grow below inflation in the future [84][103] Question: How sustainable is the current fee income growth? - The bank anticipates strong fee income growth this year, but expects a slowdown to above 10% in the following years [55][58] Question: What is the strategy regarding interest rate derivatives? - The bank has secured a more dovish path in the past but does not see significant opportunities currently due to the market's expectations [97] Question: What is the expected impact of asset quality on the bank? - Management noted that asset quality is normalizing, with NPL ratios returning to pre-pandemic levels, and expects to maintain a manageable cost of risk [86]